Why Private Firms Need Directors & Officers Insurance
- October 15, 2013
- Category: Article
Many private companies in Georgia tell us they don’t see the need to have Directors and Officers, (D & O) insurance. Many officers say the corporate structure will protect them, or D & O insurance is for publicly held corporations. Or the best one, “we can’t afford it”. Our hope is to dispel these notions. D & O Insurance premiums are competitive. The number of insurers interested in D & O insurance has grown. You can secure meaningful limits at competitive pricing. Many CEO’s and COO’s think that their General Liability insurance will cover D & O exposure. We can provide your company with a quote for D & O insurance, call us today. The GL policy is not intended to pick up many if not all the issues that can be brought against privately held companies. Let’s examine a few of the more important ones.
- Shareholders – claiming misrepresentation, breach of duty with respect to distribution of profit, or sale of the corporation. This could include ex-spouses.
- Breach of loyalty -with respect to agreements between other directors or companies. Claims also come from family members of shareholders through divorce or death.
- Claims by competitors or customers for misrepresentation, over-stating product performance or by financial institution for miss-stating financial information.
- Claims by the government have increased especially by the SEC for not properly following rules and statues.
Claim Examples
A director of medical supply company was sued, along with his company, for allegedly misappropriating trade secrets. $200,000 was spent on defense costs and the case was settled for $400,000.
The estate of a recently passed director sued the other directors for recent company poor performance. Claim settled for $750,000.
A company recruited a top sales person from a competitor who had an employment contract. The competitor sued for damages after losing its top producer. Defense costs were $250,000 and case was settled for $560,000.
The corporate documents & Statutes won’t always protect directors and officers from litigation costs and potential damages. Many claims can’t by law be indemnifiable through the corporation. You could be at risk. Call us today, we can provide a quote for you.